Nine congressional Democrats urged Treasury leaders not to establish a Corporate Alternative Minimum Tax carveout for companies that accelerate their research and experimental expense deductions under transition provisions of the One Big Beautiful Bill Act (OBBB). Senator Elizabeth Warren (D-MA) headed up a December 3 letter voicing concerns about such a carveout and requesting details on how it would impact the national debt.
R&E Expensing – CAMT Interaction
The OBBB restored full, immediate domestic R&E expensing – reversing a provision in effect from January 1, 2022, that called for five-year amortization. The OBBB also provided transition rules for taxpayers that were midway into the amortization period.
Specifically, for domestic R&E expenses paid or incurred in tax years in 2022 to 2024 that were previously subject to five-year amortization, taxpayers have two options. Taxpayers can deduct any remaining unamortized amount in the first tax year beginning after December 31, 2024, or deduct the remaining unamortized amount ratably over the two years.
But the National Foreign Trade Council, R&D Coalition, and other trade groups say the OBBB’s R&E expensing provisions interactions with CAMT can lead to unintended consequences.
CAMT, generally, is a 15% minimum tax imposed on the adjusted financial statement income (AFSI) of large corporations. It is meant to ensure that corporations with significant “book” income pay a minimum amount of tax, even if their taxable income is reduced by deductions or credits.
Reinstating full expensing in 2025, along with amortization from prior years “creates a reduction in taxable income and regular tax liability without a corresponding impact to Adjusted Financial Statement Income,” the National Foreign Trade Council explains in a September 30 letter to Treasury Assistant Secretary for Tax Policy Ken Kies. The group urges Treasury to “allow taxpayers to adjust their AFSI for CAMT purposes for any domestic R&D expenditures paid or incurred in taxable years beginning after 12/31/2021 and before 1/1/2025.”
The Bipartisan Policy Center’s Andrew Lautz unpacked the interaction between CAMT and R&E expensing in an October explainer. “Companies may face a unique challenge in 2025,” Lautz writes. “Due to the stacking of these accelerated deductions (i.e., from 2022-2024) on top of full R&D expensing for 2025, taxable income may fall significantly lower than book income.”
Dems Oppose Carveout
Warren and her colleagues, however, caution that a carveout like the one the National Foreign Trade Council proposes “would clearly undermine the purpose of CAMT: to ensure that no billionaire corporation pays a lower tax rate than 15% on the income it reports to shareholders.” Subtracting retroactive R&E expensing from AFSI amounts to a “giant new tax loophole,” in the lawmakers’ view.
The lawmakers’ December 3 letter notes the amount of “retroactive R&E expensing” available to companies under the new law – companies could “accelerate $67 billion in tax deductions just in 2026.” These accelerated deductions will drop corporations’ tax liability, and CAMT is “the only guardrail stopping them from paying little to no taxes.”
Lautz, however, points out that the shift back to immediate, full R&E expensing had bipartisan support. The transition was bound to be bumpy, and “[i]t is possible that either party would have had to deal with the book-tax issues raised by the acceleration of R&D deductions,” he adds.
Another concern for Warren is that retroactive expensing fails to incentivize economic activity, given the research “has already happened.” Warren raised these same concerns before the OBBB was enacted in a letter to the Joint Committee on Taxation’s Tom Barthold. She cautioned in that letter that the “retroactive tax cuts are likely to represent a huge, one-time cash infusion for corporations that can be used for higher executive pay or shareholder handouts in the form of buybacks and dividends.”
“Of course, the acceleration of R&D deductions cannot directly incentivize new R&D investment, since it changes the tax treatment for investments that already occurred,” Lautz explains. “It may indirectly support new R&D investment, by freeing up capital,” however, said Lautz.
In her latest letter, Warren and her colleagues seek a response by December 17 from Kies and Treasury Secretary Scott Bessent on regulatory changes under consideration to address the R&E expensing and CAMT interaction. The lawmakers also seek details on how many companies would have lower tax liability if they were allowed to subtract retroactive R&E expenses from AFSI – and how that would impact the national debt.
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